MIAMI — The decline in air cargo demand will slow to 3.8% this year, but airline cargo revenues will tumble 33% to $142.3 billion as a surge in passenger flights ushers in more capacity and global trade slows, according to a forecast by the International Air Transport Association (IATA).

More disconcerting is that cargo volumes, currently 5.3% below weak 2019 levels, will end the year 5.5% below the four-year benchmark at 240 million cargo ton kilometers (CTK) — an acknowledgement that market conditions will worsen slightly in the second half of the year when shipping volumes traditionally peak.

CTK is a measure of demand calculated by multiplying the cargo’s weight by total distance traveled. 

IATA estimated that airlines will carry 63.7 million tons this year compared to 67.8 million tons in 2019. Still, cargo revenues will remain well above the pre-pandemic level of $100 million as labor shortages and fuel expenses lead carriers to charge more for their services.

The projected 3.8% decline in airfreight shipping is an improvement from the 8% reduction last year. But some analysts note that temporary signs of stabilization likely have more to do with easier 2022 comparisons when the Chinese economy was still closed down, rather than with any demand improvement.

Prospects for the cargo sector were part of the airline industry group’s midyear outlook, released Monday in conjunction with the airline group’s annual general meeting in Istanbul. A representative provided extra details at an affiliated cargo conference here.

Overall, IATA projected airlines will turn a small profit of $9.8 billion this year — more than double the previous prediction in December — on a razor-thin margin of 1.2%. About 4.35 billion people are expected to travel in 2023, drawing close to the 4.54 billion who flew the year before COVID struck. 

Total revenues are expected to grow 9.7% year over year to $803 billion, closing in on the 2019 level. This is the first time that industry revenues will top the $800 billion mark since 2019 ($838 billion). Expense growth is expected to be contained to an 8.1% annual increase, the trade association said.

“Airlines will make, on average, $2.25 per passenger. So, the value retained by airlines for the average plane trip won’t even buy a subway ticket in NYC. Clearly that level of profitability is not sustainable. But considering we lost $76 per passenger in 2020, the velocity of the recovery is strong,” said IATA Director General Willie Walsh, according to prepared remarks.

Stronger-than-expected profitability is helped by China lifting COVID restrictions at the beginning of the year and moderation in the price of jet fuel. Airlines are also able to maintain strong yields because of high passenger demand.

Jet fuel costs are expected to average $98.5 per barrel versus an average of $135.6 per barrel last year, when the premium to refine crude oil into jet fuel jumped to 34% and fuel represented 30% of airline expenses, IATA said. Crude oil prices have fallen below $40 per barrel in recent weeks. 

Airlines are still working to normalize operations after the pandemic wiped out travel for about a year. Between 2020 and 2022, airlines lost $183 billion after achieving record profits in the second half of the last decade. Much of the industry’s projected profit is concentrated in the U.S., where the aviation industry recovered fastest. 

Cargo was the darling of the airline industry when passenger business cratered during the pandemic and planes were repurposed for cargo to meet demand for goods movement while supply chains were broken.

Now cargo’s share of total industry revenue has pulled back from the high of 40% in 2021 to 18% in 2023. That is still higher than the pre-pandemic average of about 10% to 12%.

IATA last week released figures showing a 6.6% drop in volumes year over year in April. Cargo capacity increased 13.4% and is now 3.2% above 2019 levels — the first time in three years that space for cargo was more than before the pandemic.

The reintroduction of passenger flights and their associated cargo capacity is negatively impacting average unit prices for cargo, as is the downturn in international trade attributed to government fiscal policies aimed at cooling inflation. IATA said 2023 yields are expected to retreat 28.6% from the prior year. The decline represents market normalization after yields spiked 55% in 2020, 26% in 2021 and 7.4% last year. 

Paulos Lakew, head of industry analysis for IATA, said during a presentation in Miami that yields are expected to come in 46% above 2019 levels and 33% above the 2010 mark.

Global rates for one-time quotes and longer-term contracts currently are about 40% to 48% lower than a year ago, according to price reporting agencies.

The air cargo market remains volatile and faces ongoing headwinds after 15 months of steady deceleration from record highs during the pandemic. Inventory restocking is taking longer than expected as retailers remain unsure about the momentum of consumer spending. Core inflation remains near its peak in Europe and is still much higher than before the pandemic. The International Monetary Fund now forecasts global GDP will slow to 2.8% and 1.3% for advanced economies. And global merchandise trade is projected to slow to 1.7% growth from 2.7% last year, according to the World Bank.

Positive trends that could translate to more air cargo include a recent uptick in new export orders. The Asia and European markets to North America are the strongest, supported by the strong U.S. consumer base and plenty of air cargo capacity. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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